On the Constitutionality of ObamaCare

I get what Julian, Radley, and Megan are saying, and in principle I agree with them. A fair-minded reading of the constitution and the debates that surrounded its enactment makes it pretty clear that the founders’ goal was to create a federal government of far more limited powers than the one we’ve got. But I’m finding it awfully hard to get excited about the federalist boomlet sparked by Judge Hudson’s ruling that the ObamaCare insurance mandate is unconstitutional. I’m not a big fan of ObamaCare, and I wouldn’t be too sad to see portions of it struck down by the courts. But the rank opportunism of the Republican position here is so obvious that I have trouble working up much enthusiasm.

There’s nothing particularly outrageous about the health care mandate. The federal government penalizes people for doing, and not doing, any number of things. I’m currently being punished by the tax code for failing to buy a mortgage, for example. I’d love it if the courts embraced a jurisprudence that placed limits on the federal government’s ability to engage in this kind of social engineering via the tax code. But no one seriously expects that to happen. The same Republican members of Congress who are applauding Hudson’s decision have shown no qualms about using the tax code for coercive purposes.

The test case for conservative seriousness about federalism was Raich v. Gonzales, the medical marijuana case. Justices Scalia and Kennedy flubbed that opportunity, ruling that a woman growing a plant in her backyard was engaging in interstate commerce and that this activity could therefore be regulated by the federal government. If Scalia and Kennedy now vote with the majority to strike down portions of ObamaCare, it will be pretty obvious that they regard federalism as little more than a flimsy pretext for invalidating statutes they don’t like. Or, worse, for giving a president they don’t like a black eye.

Now, to be clear, libertarians like my colleagues at Cato aren’t guilty of hypocrisy on this score. But by jumping on a bandwagon driven by hypocrites and partisan hacks, I worry that they’ll permanently damage the brand of constitutionally limited government.

I just have to say, that I think that the commerce clause is not really about individual liberty per se. It may work out that way, but I don’t think that it was intended that way. It was intended to address the balance of powers between the federal government and the state governments.

While I don’t agree with the conclusions that this post draws, I think it’s really important to keep in mind:

Why alter your opinions to shy away from opportunists sharing them? Cato is driving the limited-government bandwagon. If opportunists are jumping on and off, so be it.

The reason to be unenthusiastic about this decision is that it will be so difficult to defend. There’s little, if any, principled distinction between “penalizing” someone for not doing something and taxing everyone then rewarding those who do the desired thing. (Your point about the mortgage interest deduction, I believe.)

The hope is that the Supreme Court enjoys an “Emporer Has No Clothes” moment, realizing that it has let the commerce power and the tax power become plenary, and feels obligated to use this case to begin hollowing out precedent.

Judicial review could also be a harmful façade. If people realized how arbitrary and flimsy it really is (it seems like only politically pressing issues actually get ruled on correctly – so Guantanamo inmates benefit greatly from it, whereas poor urban blacks get shafted every time), maybe they would demand something more robust.

Kevin Drum pointed to an interesting and even earlier precedent: Wickard v. Filburn, in which a farmer wasn’t allowed to grow wheat for his own consumption. It does seem clear that the horse is not only out of the barn, but over the horizon. As you might imagine, this doesn’t trouble me too much, but I can certainly respect those who feel differently. Still, I agree that this particular law seems unlikely to be the means by which the creeping nature of the Commerce Clause is rolled back.

Right. Libertarians hate Wickard and were hoping the Supreme Court’s conservatives would use Raich as an opportunity to overrule it, de facto if not de jure. For whatever reason, Scalia and Kennedy decided not to do it then, and they’ll look like massive hypocrites if they do it now.

FWIW, I think you’re confusing the commonly stated rationale for things like the mortgage interest tax deduction, the child tax deduction, and so forth, with the actual reasons that they were enacted. The broad beliefs about the “purpose” of the mortgage interest tax deduction aren’t right. It doesn’t really have a purpose; like Topsy, it “just growed”.

While we do have a bunch of preferences for small things, no one set out to “penalize” you for not getting a mortgage in order to encourage homeownership. There’s a really long and complicated legislative history that I won’t get into, but in the process of reining in the deduction for all interest, legislators simply couldn’t take away the mortgage interest tax deduction; back then, mortgages were practically all interest, and it was pretty much a straight political calculation, plus a genuine sympathy for homeowners who would have gotten slammed. There’s a perfectly legitimate argument for attempting to adjust revenue-raising measures to the necessary expenses of the taxpayers. I don’t think that, economically speaking, this is a *good idea*, but it’s a philosophical question that fits well within the scope of the taxing powers allowed by the 16th amendment.

The health insurance mandate just doesn’t work that way. If they’d just offered a tax deduction for buying health insurance, I actually wouldn’t have such a big problem with this (beyond my general problems with deductions in the tax code), because you could argue that health insurance is a differential expense that you need to adjust for. IF you’d paid for that by lowering the standard deduction, fine.

But the fact is that they didn’t do that, and the reason they didn’t is that it wouldn’t work–too few people pay any income tax, and psychologically, it would have broken the link between not buying insurance, and paying a bunch of money. In order for the mandate to serve its actual purpose as a penalty, to change behavior, it cannot work as the latest Democratic talking point has it–a simple change to the tax code which happens to add a deduction for buying health insurance. For the penalty to work as it is supposed to in law, it pretty much has to be a head tax–which, as you know, would require apportionment to the states.

Frankly, this argument is more than a little desperate to me, though no less popular for that. There seem to be currently at least three different administration lines on exactly what sort of a tax the mandate is, none of which really fits with the others–it’s not a tax but the government has the authority to enact a penalty because of the commerce clause; it is a tax aimed largely at raising revenue which just coincidentally happens to change behavior in a way vital to other sections of the law; and not only the mandate, but the insurance premiums themselves are a “financing mechanism”, aka a tax. The government’s arguments are making less and less sense over time, indicating that they have no coherent constitutional theory.

Are Republicans hypocrites? Sure. So are Democrats, who are clearly willing to say anything at all about this, no matter how it contradicts earlier statements about the same law. (It’s a penalty . . . it’s a tax . . . it’s SUPERLAW!) I don’t know whether Scalia and Kennedy themselves are hypocrites, or merely felt themselves constrained by Wickard, and all the decades of previous laws that a contrary ruling in Raich would suddenly overturn. I don’t really think it matters; I’m still mad at them for ruling as they did.

But either way, I don’t understand why I would stop making an argument I believe–that the commerce clause and the taxing power should not be read so as to essentially remove any limits on government power that aren’t found in the first, fourth, or fifth amendments–simply because hypocrites are making it. I have never actually found an argument so excellent that it wasn’t being advanced opportunistically by people who cared only about the outcome, not the process.

It seems obvious that the mandate penalty is exactly equivalent to one (especially as it exempts people too poor to afford insurance, so it really is just a change in the formula to calculate taxes). Or is the child tax *credit* an equally unconstitutional as another head tax that no one has bothered to challenge for *years*?

“If they’d just offered a tax deduction for buying health insurance, I actually wouldn’t have such a big problem with this”

I don’t understand this and never will. Not because it’s irrational, but because it sounds like a bunch of rationalizing. It’s like saying, “I would have liked that meal better if you served it with Coke instead of Pepsi.” We’re talking about differences so slight that their effect should be negligible.

Question for the libertarians: If the feds passed a law that required the states to mandate health insurance on a state level, would you have the same objection?

As far as I know, no one’s ever challenged the child tax credit. But as a broad matter, do I think the way that Congress has mangled our tax code often ought to be unconstitutional? Umm, yes. Do I also think that these manipulations are a bad idea? Also yes. As a legal matter, not all things done through the tax code are taxes, so no, a refundable tax credit is not a head tax. Are you a tax protester? I’ve heard that argument from TPs before, and as far as I know, that’s been litigated extensively already.

On the other hand, actual head taxes–per person taxes of a fixed amount that are not triggered by an activity or income–are pretty much black letter law; as far as I can tell, there would have to be a pretty novel finding to conclude that a $750 per person tax is not a head tax. Taxing income required an amendment for this reason.

As for the question “can Congress avoid its enumerated powers by forcing the states to carry out its will”, this has also been litigated extensively, and the answer is no. Is what Massachusetts doing constitutional? I’m afraid I know nothing about the Massachusetts state constitution; I don’t see anything in the US constitution that forbids it.

The interpretation of the tax code that y’all are pushing seems to me to end in the conclusion that congress can raise taxes by $3,000 and then start offering $3,000 rebates to people who attend church once a week, or read the complete works of Marx, or volunteer on political campaigns. Should I really not be bothered by congressional attempts to run around limits on its powers–whether those limits are it enumerated powers, or the bill of rights–by using the taxing power?

I’d also note that given that the exchanges are all happening at the state level, there’s not really a particularly good argument as to why this effects interstate commerce, or why the feds have to do this. If its so great, the states can do it themselves; if the citizens want it, they can vote for it.

I find your argument semi-persuasive on the specific case of the mortgage deduction. However, I’m not sure I buy your more general argument. The difference between the “penalty” Congress enacted and the “tax credit plus lower standard deduction” alternative you said you’re OK with is almost entirely about the label Congress chose to put on it. I don’t think the courts want to extend constitutional import to the label Congress chooses to put on a tax.

I’m not saying you should “stop making an argument you believe.” I just think we should acknowledge that finding the ObamaCare mandate unconstitutional would in fact be a major break with the court’s past precedents. As I said, I’d be happy to see the courts overturn Wickard v. Filburn and put some limits on social engineering through the tax code. What I don’t agree with is the idea that the ObamaCare mandate is obviously a step beyond other stuff Congress does (like the child tax credit and regulating personal marijuana consumption) that’s considered constitutional under the court’s current precedents.

1) I’d be interested in looking back at both of our arguments on Gonzales v. Raich, which is quite arguably much less of an expansion of Congress’ powers. I’m not sure whether I made a constitutional argument, but if I did, I expect I’d have emphasized the point where it did represent an expansion from Wickard: regulating the inputs of a product that is going to be sold interstate is different from regulating the inputs of something that will never be sold interstate.

2) I’m not arguing that it is likely that the Supreme Court will overturn this; rather, I’m arguing that it should.

3) You’re arguing that this isn’t functionally different from what Congress does now. I actually disagree with this–factually, what we perceive as attempts to change behavior are actually artifacts of attempts to do something else, which is different, both in law and in principle. And structurally, the tax credit power is very limited by the fact that it has to work through the income tax system. The power to enact a head tax and then immediately offer a deduction is in fact, aimed at restricting liberty in a way that the child tax credit simply isn’t. As I asked on my blog: under this logic, would it be no big deal if Congress enacted a $50,000 excise tax on second-term abortions, or a $50,000 head tax refundable to people who didn’t have abortions? Would that really be in any meaningful way, no different from the child tax credit? I’d say that in intent, in principal, and in practice, it would be very different.

4) I’m also interested in the technical aspect of the law, which to be sure, I am not an expert on. We’re not in a thought experiment where we decide what the government can and can’t do in principal; we live in a state of laws, and process matters. It is not clear to me that the government has technically structured this mandate so that it falls neatly under any of the powers that they are claiming, mostly because the government didn’t bother–didn’t think it had to (itself very worrying). I don’t think it’s hypocritical or particularly ideological to say that badly structured rules should fail, and that if they are not reined in, this itself represents a pretty radical, and bad, extension of state power. And I think that if the only thing these lawsuits do is make Congress actually try to craft some coherent constitutional theory of the laws they’re passing, rather than just assume the SC will rubber-stamp, that would be an improvement.

5) I’m not saying that I have no problem with the state structuring this as a change in the standard deduction/tax credit. I’m saying that such a change constitutional–but that it is constitutional in part precisely because *it would not function the way this mandate penalty functions*. The structural limitations in the tax code, while inadequate, prevent the government from using its tax power to simply assert unlimited power, and that’s a good thing.

I think the answer to (3) is that the Supreme Court has declared abortion to be a fundamental right, thereby subjecting acts of Congress to strict scrutiny. Again, I’m not crazy about this general framework, but it’s much easier to see how an abortion tax would be unconstitutional under it than a not-buying-insurance tax.

I don’t disagree on (4).

I still don’t agree on (5). It might be true that framing it as a penalty has a slightly stronger effect on peoples’ behavior than framing it as a tax credit, but if Congress had enacted a mathematically equivalent tax-hike-and-credit scheme, I don’t think the effect on peoples’ behavior would be very different. Most people want health insurance, and the tax credit makes it close to free after tax, right? Why wouldn’t people sign up? And if they opt for the penalty, can’t the government use the revenue to subsidize premiums? It seems like a wash to me.

Let’s go back to how this would have to be structured. After thinking about this, I believe I misspoke earlier; there may be no real way to replicate the mandate through the income tax code. A $750 decrease in any given allowance does not result in a $750 decrease in your taxes; it results in a ($750*mtr) decrease in your taxes. You would need some incredibly complicated formula to step up everyone’s taxes by $750 (maybe reduce all the allowances by exactly $750?)

Let’s say we figure that out, though. There are a lot of people whose deductions now more than cover their tax liability, which means that no matter how you slice it, you’d have a lot of people whose additional $750 was eaten by the “excess” deductions and allowances they currently enjoy. You’d then be giving anyone who bought insurance a bonus tax credit. This would be a problem on a bunch of levels. A lot of that insurance is heavily federally subsidized, so that the people on the exchanges whose behavior we are most trying to effect could very easily be getting a tax credit for more than their cost of buying insurance. It would also be way more expensive than the original plan–so expensive that I’m pretty sure that the bill never could have passed under that structure. Essentially, there would be no penalty for a lot of people who didn’t buy insurance (the group we’re most trying to affect) and a bonus $750 we’re giving to people who may not have paid $750 directly for thier insurance, either because their employers provide it for less, or because they bought heavily subsidized insurance on the exchange.

Which gets us to your argument: doesn’t this make insurance essentially free? Why wouldn’t people do this? The first answer is that people are liquidity constrained–they can’t necessarily invest $100 a month now because they’ll get $750 back in twelve months. The second is that people do not, in the tax code, behave like rational value maximizers–and the lower-income folks we’re most trying to affect behave least like this. Framing seems to have had big effects on how the Bush tax rebates were spent, for instance, even though this shouldn’t matter at all. The third is that many people–again, the ones whose behavior we are most trying to affect–will have no idea that the tax credit even exists; sophistication about the tax code is not evenly distributed through the population. And fourth, of course, it will not be essentially free for many of the people expected. Even in a low cost state, a pretty modest insurance policy will run you at least twice the cost of the mandate.

So to sum up, a refundable tax credit would be hugely more costly, probably couldn’t be enacted in any structure recognizably the one being described by proponents (we’re just raising taxes $750 then rebating them!) and would serve as a much weaker deterrent to behavior.

It’s kind of like saying, “What if we presumptively assumed that the government could jail everyone, BUT we gave everyone a ‘get out of jail free’ card that we would only take away if they committed a crime.” I mean, I can see how in abstract, you could say that this is really the same thing as we have now. But even though the outcomes might look the same at T0, and you could even claim that the system was animated by the same principals, I (and I think most libertarians) would say that it’s actually very different.

Can someone explain the difference between the IRS-enforced individual mandate in Obamacare and the IRS-enforced mandatory private retirement savings that were proposed by Bush in 2005? Let’s say I don’t care about my own future or saving for retirement, what part of the Constitution allows the nanny-state government to coerce me into saving for my own retirement?

People who find the 2005 Bush proposal constitutional but the Obamacare mandate unconstitutional are just as hypocritical as those protesters with their “keep your government hands off my Medicare” signs. And BTW, by the same logic, why should Medicare not be declared unconstitutional as well?

Megan, I think you’re right that it would be hard to perfectly mirror the provisions of the mandate using the existing structure of the tax code. I’m not convinced that any of the differences have constitutional import, but I haven’t looked at it closely so I could be wrong.

On the liquidity point, aren’t people liquidity-constrained in either scenario? In either case, people either pay for insurance now or they pay a higher tax bill the following April. Aren’t the same people who don’t buy insurance under the tax credit scheme because they don’t have the money likely to not buy insurance under ObamaCare because they don’t have the money?

The best article I’ve ever seen on Gonzales is here. I know that the article may be a bit dense for non-lawyers, but it’s incredibly good. (In fact, it’s the most downloaded article about federal courts in the history of SSRN, and it’s only been up for a few months. Wow!)

Basically, the problem with Gonzales is that the defendant asked the court to invalidate the federal drug laws just because those laws could be, and arguably were, applied in an unconstitutional way. But that doesn’t make the law bad, it makes the Executive’s application of the law bad. The President failed to faithfully execute his duties.

Read the article. It’s written by a libertarian/conservative, and he convinced me that Gonzales was not only correctly decided, but should have been 9-0.